Shareholder vs. Stakeholder Value


We hear a lot about CEO pay being explained by the fact that they’ve increased shareholder value for the organizations they lead but what about stakeholder value?

Shareholders in an organization are only one of the stakeholder groups that corporations need to focus on and arguably they are not even the most important group of stakeholders.  That title goes to the people who create, manage, and deliver products and services and the support staff that make sure that invoices are sent out and tracked, payments are processed, logistics programs run efficiently, etc.  In other words, the employees!  What about the other key group of stakeholders, the community(s) where corporations operate.  The services that support the physical infrastructure that allow corporations to operate are supported in part by local ratepayers, local, regional, and federal governments.  These are all key stakeholder groups that corporations need to focus on and hence increase the value they provide to them.

I’ve been reading an increasing number of articles about the top 1% in North America and the ratio of CEO compensation to average worker pay.  The numbers are staggering, as has already been well reported.  According to a Bloomburg report published April 30 2013, the ratios range from JC Penny’s CEO at a staggering ratio of 1795:1 (the worst offender) to Family Dollar Stores at 176:1 (in 244th position).  Tied to this are the reports that show that many minimum wage workers and lower paid workers are dependent on government assistance programs and other forms of community and social support.  So while executives focus on increasing shareholder value by increasing profits, the employees who deliver that value are not reaping the rewards and are in turn supported by the government to survive.  Effectively, profitable corporations are profitable, in part, because they are supported by taxpayers.

These are unsustainable practices at the societal level.  Economic, community and environmental sustainability can not exist in this type of environment where one small portion of society, the “1%”, control a hugely disproportionate amount of wealth.  As a society, we can not allow this situation to continue.  What if instead of corporations share value being measured based on the balance sheet, the measurements also include indicators of how many people employed require public assistance to survive.  Better still, if government truly supports the idea of a sustainable society, tax corporations an amount in excess of what is paid out to support their workers because of low wages and lack of benefits.  People that buy the products and services produced by these corporations, whether consumers or other businesses, need to insist on changes to how companies operate.  Sustainable business management is about creating value for all stakeholders of an organization, not just one small group of shareholders.

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